Radio InSights

Will iHeartRadio Kill Radio?

Is iHeartRadio an apocalyptic doomsday machine that will ultimately destroy broadcast radio as we know it?

Or is iHeartRadio a gateway to radio’s salvation, radio’s best chance to remain relevant in a digital world?

The rate at which Clear Channel is signing up new radio groups suggests that many believe the latter.

But is iHeartRadio really the answer?

Broadcast radio’s greatest strength is a station's strong link to its community.

Radio’s local link is the medium’s most potent weapon in the battle for a listener’s heart and soul.

That  personal connection between a listener and her radio station is something that national radio (both digital and analog) fails to understand, and can’t duplicate.

Yet iHeartRadio’s very essence diminishes radio’s local roots.

The service neuters local radio, homogenizing radio into interchangeable undifferentiated lumps of similarly formatted radio stations.

Don’t want to listen to New York’s Z100? We’ve got another dozen stations just like it a click away.

Were these choices really different, it might mean something, but the service offers choice without distinction.

Too often one hears the same national playlists, and the same national personalities talking about the same national contests with the same national promos.

The growing interchangeability of stations across the country is all that more apparent with the convenience of iHeartRadio. A listener is just a couple clicks away from hearing the same thing on dozens of stations.

The message of iHeartRadio is that unique local radio is dead. All local radio stations are interchangeable.

The impact of iHeartRadio is to take local radio’s insurmountable advantage, its local connection, and destroy it.

The message to listeners is that local radio is no better than anonymous generic national radio dispensed by an algorithmic driven computer.

In an effort to demonstrate that an aggregation of local stations is just as good as a national service, iHeartRadio inadvertently proves that local radio is just as bad as a national service.

Why else offer a Pandora look-a-like?

Yes, Pandora is the darling of new-media pundits, those people who can’t understand why anyone still listens to local radio.

Yes, Pandora has been growing exponentially armed with an endless array of metrics that suggest seemingly unstoppable momentum.

But the truth is that Pandora is losing money, and shows signs that it might be incapable of making money.

Last year Pandora proudly generated $240 million is sales. Broadcast radio stations generated over $400 million--in digital sales alone.

Why would a leader in an industry currently billing nearly twice the digital revenue of Pandora want to promote a Pandora-like feature, and do it on local broadcast stations at saturation levels?

iHeartRadio is just one of a number of industry actions that claim to be an effort to save radio, but instead may have the opposite effect.

Radio Insights believes this is an important issue that potentially impacts every radio station, and ultimately how local radio is viewed.

We question the wisdom of radio’s obsessive rush to focus on digital platforms, especially when they emulate trendy but failed and failing business models.

The growth of iHeartRadio could metastasize into something quite deadly for broadcast, a possibility that every broadcaster should understand.

That’s why we’ll have more on iHeartRadio and what it says about radio in the coming weeks.

Stay tuned.

Smart-Phone: Radio Salvation or Another Nail in Coffin?

Over half of cell phones sold in the US are now smart-phones like iPhones, Androids, and Blackberry.

If the trend continues, one day virtually everyone will be able to listen to radio where ever they go.

While some have heralded this development as a huge opportunity for radio, the growing use of smart mobile devices may be at best a mixed blessing.

The reason is that compared to listening on a radio or computer, mobile listening-spans are dramatically shorter. And shorter listening-spans makes radio time harder to sell.

Even Pandora is not immune to the impact.

While Pandora regularly crows about all sorts of new records like number of subscribers, or session starts, the service never mentions TSL, the amount of time users spend with the service.

Maybe that’s because while Triton Digital ratings show average sessions and session starts growing, TSL, the average length of time a person listens to Pandora, is headed in the opposite direction.

The graph above traces Pandora’s TSL for the past three years.

In 2009 Pandora TSL was about an hour. At the time only computer listening was included in the ratings.

Then in December 2009 mobile listening was added to the service’s ratings for the first time.

Pandora TSL immediately started dropping. In just four months TSL plummeted to just 46 minutes.

Aside from a few positive months in late 2010, the service’s TSL has continued its steady erosion throughout 2011, even accelerating towards the end of the year.

Today Pandora TSL is down to 38 minutes, a loss of 34%.

The precipitous decline in TSL coincides with a dramatic increase in the number of users listening on smart-phones and iPads.

 As Business Insider points out:

While 88 percent of Pandora's listening hours came from desktop use in Q1 of 2010, by 2012, users spend (sic) 70 percent of their time on Pandora listening on their mobile devices.

On a computer one can listen to their favorite station as they continue to do other work on the computer.

Multitasking on a mobile device is much more problematic than on a computer. And if one is using the phone to make and answer phone calls, listening to radio for any length of time isn’t going to be practical.

So it stands to reason that TSL will decline as more people listen on mobile devices.

Is TSL for broadcast streams following the same pattern? Sure is.

Harker Research tracks broadcast streams measured by Triton Digital, and broadcast streams are suffering a similar decline.

The second graph above reflects the combined TSL of 12 broadcast groups for which we have multi-year trends.¹ In the beginning of 2010 the combined TSL was over 35 hours, nearly three hours per radio group.

By 2011, the combined TSL was down to 24 hours, and today it is down to 16 hours, a decline of over 50%, a decline even greater than Pandora’s.

And what about Bob Pittman’s Clear Channel Communications, leading the digital charge with its iHeartRadio app?

As measured by Triton Digital, Clear Channel is the worst performing streaming service in terms of TSL, and one of the worse performing in terms of its decline.

The third graph tells the story.

Two years ago Clear Channel average sessions consistently lasted over an hour, some months exceeding 82 minutes.

As of August, TSL had fallen to 32 minutes, a decline of 61%.

If the time spent with mobile devices continues to grow at the expense of traditional computer use, we can expect TSL to continue to decline.

And that could cost radio a lot.

For Pandora who started with zero listeners and zero dollars in sales, the growth in audience more than makes up for the loss of TSL per user.

A loss of TSL for broadcast radio can’t help but hurt revenue.

Radio already reaches more than 90% of Americans. There is no more room to grow cume audience.

To grow AQH and revenue, broadcast radio has to increase TSL. And TSL is headed in the wrong direction.

Radio took a financial hit when AQH ratings dropped in the markets that switched to PPM.

Streaming is likely to be another financial hit as AQH ratings decline even further as people replace their radios with mobile devices.

Think about that next time you hear a promo for iHeartRadio.

¹The 12 groups are Cox, Cumulus, EMF, Emmis, Entercom, ESPN, Greater Media, Hubbard, Radio One, Salem, Townsquare, Univision. Neither CBS nor Clear Channel are included because of their non-broadcast streams.

Dance With the One That Brung Ya

If you ran a company that produced two products, one that delivered more than 95% of your revenue, and a second that delivered less than 5%, which would you give more attention to?

Probably the one that produced nearly all the company’s revenue. Right?

And which product would you invest in more heavily? The one that makes all the money, or the one that doesn’t?

You’d want to invest in the product that makes 95% of your revenue, wouldn’t you?

Then why is radio cutting broadcast budgets to finance its digital follies? Why is the cash cow being sacrificed to compete with digital services that make no money and probably never will?

Revenue figures for the first half of 2012 are in and they look pretty much like the hypothetical company we’ve described. The graph below shows first half revenue.

Broadcast spot revenue came in at $6.8 billion, while digital, that tiny orange sliver on the graph, totaled less than $400 million.

In other words, running broadcast spots generated nineteen times the money radio got from digital.

(And rumors persist that groups are fudging the digital numbers to make streaming look more successful than it is.)

On top of that, digital growth has slowed. Digital only increased an anemic $22 million over the same period in 2011, an increase of only 4.7%.

At this growth rate, digital won’t surpass broadcast spot revenue until well into the 22nd century!

Compare those number to the darling of digital radio, Pandora.

Pandora closed its 2012 fiscal year proudly bragging about its advertising revenue of $240 million. Last year broadcast radio stations generated $709 million in digital sales, nearly three times as much.

Broadcast radio continues to be a huge financial success, generating margins that the NAB’s former president David Rehr once declared obscene.

Pandora, the focus of digital boosters, the subject of countless new-media success stories, has yet to make a profit, and admits it may never make a profit.

Yet broadcast radio is obsessed with growing digital dollars to prove it is just as good as Pandora.

And radio is financing this Don Quixote-worthy effort by diverting dollars that should be invested in the local broadcast product.

Yes, radio may ultimately become a product primarily delivered via computer and smartphone, but if its product is debased in a rush to be just as good as Pandora, then no one will listen to it no matter how it is delivered.

Dance with the one that brung ya is a reminder that no matter how tempting a new alternative might look, one shouldn’t forget the thing that got you there in the first place.

Radio makes those obscene profits by delivering a local product that meets the wants and needs of listeners who live in the same community.

If radio starts to ignore its local roots and historical connection to the communities it serves, then it may succeed in equaling Pandora-–as a failure.